As you are probably aware, the New NHS Pension Scheme goes
live from April 1st 2008.
This scheme is automatic for new members from that date,
and a major change here is that the normal retirement age
is 65, not 60.
However, the existing scheme also changes in some key areas
for those of you who opt to stay as you are.
We concentrate here on these changes as most of our clients
are in their 40's and 50's and are almost certain to remain
in the current scheme. You will automatically become
members of the updated existing scheme from April 1st next
year.
So how are you going to be affected?
Well, there are quite a few changes, so lets start with the
bad news! The flat 6% cost will now be tiered, depending on
your earnings:
Up to £19,165 6%
Up to £63,416 6.5%
Up to £99,999 7.5%
£100,000 plus 8.5%
As you can see, if you earn more you pay more. If your NHS
income is, say, £90,000, you are currently paying
£5,400. From April it will be £6,020, although
this is gross and you get tax relief on these figures
(meaning as a higher rate taxpayer you would pay
£3,612 on the latter figure).
The good news is that you will retain the normal retirement
age of 60, or age 55 in certain special cases such as
Mental Health Officers.
Other key changes are:
The earnings cap for hospital based individuals is being
abolished. So, although higher earners will be paying more
as above, you will benefit from a real pension increase if
your NHS earnings are above £112,800 pa. (e.g. if you
have a merit award).
The General Dental Practitioner earnings cap is also being
removed - circa £110,000. So for those of you earning
more than this figure, from 2008 you will benefit from
increases to your pension.
Also for this group, and also for General Medical
Practitioners, your pensionable earnings revaluation on
dynamisation will now be determined by the retail price
index plus 1.5%, rather than the increases in each
practitioner profession.
A key change for benefits to partners on death have also
been announced. Qualifying partners now include someone you
have nominated who you have an exclusive and long-term
committed relationship with for at least two years and who
is financially dependant or inter-dependant. In addition,
if such a partner were to remarry or cohabit, they keep
their survivor pension (a huge benefit).
It should be mentioned here that the ill health retirement
rules are being reviewed seperately, and this review is due
to report early next year. As these are very important
benefits, we will update you when there is more news.
Buying extra pension benefits has also got new rules, one
of them bringing the NHS scheme in line with the overall 'A
DAY' pension changes that were introduced in April 2006.
This means you can contribute as much as you earn.
Secondly, the option of Added Years is being removed
entirely - existing contacts will be honoured - (you need
to have your application in by the end of March 2008 if you
wish to use this route). The replacement is called 'buying
additional pension, with a maximum of £5,000 per
annum.
At retirement, you can take your pension and lump sum as
usual, but there is an option to commute some of the
pension to give more lump sum. As this lump sum is tax
free, it may well prove popular. For example, for someone
with around 36 years service and an NHS income of
£100,000 pa:
Typical pension/lump sum - £45,500/£136,500
Option pension/lump sum - £36,500/£244,000
Finally, you can now work on to age 75. Please apply early
to avoid the rush :)
We have not covered all the various changes here. Make sure
you are aware of how these changes affect your benefits.
The Financial Tips Bottom Line:
As the NHS Pension Scheme is the foundation for many
dentists and doctors, ensure you are up to date with these
changes, and understand what they mean to you.
You will receive information packs from the NHS Pension
Agency with your pay advice in due course.
ACTION POINT
For full details of the changes go to:
www.nhspa.gov.uk/site/nhs/index.htm
For the pension/lump sum calculator go to:
www.nhspa.gov.uk/site/nhs/Pensions_Contribution.html
----------------------------------------------------
Ray Prince is an Independent Financial Planner with
Rutherford Wilkinson plc, and helps UK Resident Doctors and
Dentists get the best deals on mortgages, protection and
investments, as well as helping them achieve their
financial objectives. Just visit
http://www.medicaldentalfs.com to get your free retirement
planning guide. Rutherford Wilkinson plc is authorised and
regulated by the Financial Services Authority.
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